Best Gauge of Innovation Is Commercial Appeal

Mobile phones, iPods, televisions, and other gadgets are practically designed for the dump nowadays, as consumers ditch them after a year or two for the newer iterations.

But the so-called disposable consumer society these rapid-paced innovations have helped create is a critical driver of the American economy, because it encourages consumers to keep their wallets open.

In most cases when it comes to innovation, the simple fact that something is new and being purchased is a demonstration of its value, economists and business professors argue.

'A' for Anything That Sells

“I don’t care if it’s pet rocks or Angry Birds, if someone’s willing to pay for it, value is being created,” says Amar Bhidé, a professor of international business at the Fletcher School of Law and Diplomacy at Tufts University. “Consumers tend to do a good job of screening out innovations they don’t want, and we have by and large put enough sand in the wheels of innovation so that things that are likely to do harm to innocent bystanders we control.”

Determining whether an innovation is “good” or “bad” is a complicated calculus, says Alexander Field, an economic historian who teaches at Santa Clara University.

“Disposable diapers for children became a cause célèbre because of concern about all of the added waste to landfill, but it takes energy to heat water to wash cloth diapers and obviously then waste water is generated and it takes energy to drive the diaper service truck that’s bringing the cloth diapers to you and taking them away,” he says. “Something that looks like a slam dunk as an example of a disposable society, or that consumers aren’t bearing the cost of the increased landfill, may not be so absolutely clear.”

Similarly, while technology products such as iPhones and PCs may be adding to the junk pile with their increasingly shorter lifespans, they also have improved communications capabilities by leaps and bounds.

“Silicon Valley is starting to take over the pace of innovation in every single industry, whether it’s the auto industry or agriculture or credit cards,” says Jim Carroll, a global futurist and trends and innovation expert. “Like in the early days of the Internet, it can be seen as good and bad.”

One area of innovation that does worry some economists and business professors is financial engineering.

An 'F' for Financial Innovation

"A Call for Judgment," a recent book by Bhidé of Tufts University, blasts the unregulated market of credit default swaps, which nearly brought down the global financial system back in 2008, as an example of bad—or worse, worthless—innovation.

“They don’t serve any social purpose. There was an ideology which was blind, and remains blind, to the inherent defects of these products," he says. "Their capacity to blow up long after they’ve been introduced is huge. Liquidity in the market might be better, but there’s a blindness to this tradeoff.”

Clayton Christensen, a Harvard business school professor who made the best-seller lists with his book, "The Innovator’s Dilemma," says financial engineering is a cancer that’s been growing for the past two or three decades.

“Now it’s just epidemic,” he says. “The core problem is financial professors at business schools who have helped the financial community at large to begin defining profit in ways that are synthetic and not real.”

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Those synthetic profits aren’t creating the jobs real profits would and are also stifling innovation, Christensen says. “It’s people who think they can redefine finance in order to generate more profitability that’s not real," he says. "As long as they can keep deceiving each other, they can keep making money.”

Part of the reason the economic recovery has been sputtering over the past few years is because there hasn’t been enough of what he calls “disruptive innovation,”a term he coined around a decade ago.

Such innovations and technologies transform something that today is complicated and expensive into something that is affordable and easy to use, opening up the product or service to a whole new population of consumers.

Instead of disruptive innovations, companies are keeping their cash hoards and developing what Christensen calls “sustaining” innovations—simply extending the life of existing products or services—that do little to boost the economy or create jobs.

“We’re not creating new jobs because of financial engineering and the pursuit of synthetic financial products,” he says.